Pomboy: Fed to reverse course


Investors have generally underestimated the impact QE has had on the economy, says Stephanie Pomboy in a Barron's interview, and as a consequence are underestimating the effect of the taper. That the economy has no self-sustaining momentum is starting to come into focus though, she says, expecting to see nominal growth continue to decline. "Over the longer term there is no material upside risk to Treasury yields ... You want to sell at 2% and buy at 3%."

Housing is key, says Pomboy, and there's little doubt QE had an enormous positive impact on the sector. This more or less came to and end one year ago when Ben Bernanke simply raised the possibility of the taper, and housing hasn't recovered its footing since. "What we need to sustain housing from here, if anything, is lower rates, not a taper."

Summarizing her view of the economy is a chart comparing net worth with consumer spending. Household net worth is up $25T since the March 2009 bottom, but spending growth hasn't materially accelerated alongside - an unprecedented occurrence over the past 50 years. And what spending increase there has been, she says, is almost fully the result of inflation - hardly a sign of consumer strength.

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Comments (24)
  • bbro
    , contributor
    Comments (11234) | Send Message
     
    No Business Cycle has ended without the Deposits to Loans ratio entering a pronounced decline....this process has not even started yet which means this pony
    has a long way to ride....
    24 May 2014, 08:38 AM Reply Like
  • Joe2922
    , contributor
    Comments (486) | Send Message
     
    All those historical things are useless now, new game in town named Fed, U.S. Govt., on steroids, amphetamines.
    24 May 2014, 10:31 AM Reply Like
  • wyostocks
    , contributor
    Comments (9115) | Send Message
     
    The Fed has HURT the average citizen, not helped. All their actions are designed to help banks not people.

     

    Wages are stagnant, if not down, and the real unemployment rate is somewhere around 15% so why should the economy be better? In addition, the Fed ZIRP has hurt the middle class and seniors who have no money to spend.
    24 May 2014, 09:32 AM Reply Like
  • Joe2922
    , contributor
    Comments (486) | Send Message
     
    It helped the rich, upper middle class, very much
    24 May 2014, 10:32 AM Reply Like
  • WisPokerGuy
    , contributor
    Comments (1404) | Send Message
     
    How would the "average citizen" have felt about a borderline depression with unemployment in the 18-20% range (or 30% given your 'real unemployment" scenario)?

     

    It funny how quickly people forget how bad things could have actually gotten - but didn't. Frankly, if a doctor told me I could have my arm amputated in 10 years or taken off today, I'm choosing the 10 years scenario. Maybe QE will cause a massive future economic meltdown (which NO ONE knows for sure it will), but we were in some REAL serious sh*t just a few years ago and people now dismiss that period as "not so bad". That's just silly.
    24 May 2014, 11:21 AM Reply Like
  • King Rat
    , contributor
    Comments (1834) | Send Message
     
    WPG, most pre-QE estimates of worst case scenario by the president's smartest men put unemployment topping out at 8% without bailouts/TARP/stimulus/QE and that was with a much higher labor participation rate. Your doomsday scenario of what "might have been" in order to justify "what has come to pass" is ludicrous at best. Yes, let us just shut down any discussion by saying "it would have been worse had X not happened". You can justify any X that way.
    24 May 2014, 01:01 PM Reply Like
  • bgold1955
    , contributor
    Comments (2352) | Send Message
     
    King, when you take $10-17trillion, various estimates (but will never know), out of the economy it will require time to heal. The Fed had NO choice but to do what was done as most of the central banks globally followed.

     

    You are also dealing with baby boomer demographics for a lot of the world & that group was the spenders, not so much now.
    24 May 2014, 03:11 PM Reply Like
  • wyostocks
    , contributor
    Comments (9115) | Send Message
     
    WisePokerGuy

     

    The "it would have been worse" scenario can be used to justify anything you wish. Stick to the facts.
    24 May 2014, 04:24 PM Reply Like
  • Marek
    , contributor
    Comments (1516) | Send Message
     
    Sounds like you are trying to outdo Greenspan in opacity.
    24 May 2014, 08:42 PM Reply Like
  • Lakeaffect
    , contributor
    Comments (1478) | Send Message
     
    Wisco - Isn't that Pomboy's point? QE helped the economy much more than people give it credit for. So, what happens when it's withdrawn? Maybe third time's the charm ...

     

    As BBro and others note in their comments below, if does appear that Pomboy for one didn't give QE enough consideration when making her prognostications.
    24 May 2014, 09:28 PM Reply Like
  • bbro
    , contributor
    Comments (11234) | Send Message
     
    Pomboy..2/26/11.....

     

    "One of my favorite trades would be to rotate back the other way. People are going to discover the view about the durability of the U.S. economy is overblown, and they will rotate back toward emerging markets."

     

    EEM.... up .58% SPY up 53.82% (dividends reinvested)

     

    "I would be looking to short some of the discretionary stocks, including XRT [SPDR S&P Retail], an ETF that gives investors exposure to retailing."

     

    XRT up 75.12% (dividends reinvested)
    24 May 2014, 09:40 AM Reply Like
  • leopardtrader
    , contributor
    Comments (3800) | Send Message
     
    Lol I think she is a long term bear that lost all her shirts.

     

    She is totally wrong for not taking into consideration the fact that economy is now global instead of USA-centric. A whole lot is happening around the globe than previously. Think of this way that China was one of the poorest countries in 1980 and right now the second largest ? African overall economy have increased more than 20 fold since then. what about Latin America ? Those would have grown 30~40 fold .

     

    S&P 500 tracks global economy no longer USA economy. Most components of this index get their earnings abroad so rising global breath is not a surprise
    24 May 2014, 10:22 AM Reply Like
  • TaiPan
    , contributor
    Comments (882) | Send Message
     
    bbro:

     

    From an author's point of view, it's just not fair to quote what the author -- a supposed market seer (Pomboy in this case) -- actually said in the past.

     

    You are the fact checker, and the scourge of false reputations.

     

    Well done.
    24 May 2014, 06:58 PM Reply Like
  • Marek
    , contributor
    Comments (1516) | Send Message
     
    WOW
    24 May 2014, 08:44 PM Reply Like
  • Rope a Dope
    , contributor
    Comments (708) | Send Message
     
    The current business cycle ended on January 20, 2009. The next business cycle will begin on January 20, 2017.
    24 May 2014, 09:40 AM Reply Like
  • WisPokerGuy
    , contributor
    Comments (1404) | Send Message
     
    Congratulations! You just MISSED one of the single greatest wealth building opportunities in the history of the world!

     

    How smart do you feel now?
    24 May 2014, 11:26 AM Reply Like
  • Rope a Dope
    , contributor
    Comments (708) | Send Message
     
    I didn't miss anything, but apparently you did. Read the Barron's article again.
    24 May 2014, 11:48 AM Reply Like
  • bbro
    , contributor
    Comments (11234) | Send Message
     
    Political focus is an overrated investment strategy....SPY up 163.59% since 1/20/09

     

    (dividends reinvested)
    24 May 2014, 09:46 AM Reply Like
  • King Rat
    , contributor
    Comments (1834) | Send Message
     
    bbro, that is a great point. Similar thing happened with Reagan. However perhaps the stereotype is helpful because if people realized how LITTLE power the president actually held, they would probably panic. The false sense of security in what a president can do is a helpful opiate in times of trouble.
    24 May 2014, 01:07 PM Reply Like
  • bgold1955
    , contributor
    Comments (2352) | Send Message
     
    Some would argue that Laissez Faire government was a major factor in 1929, 1987, & 2008. Wish it didn't have to be that way but that seems to be the way some are made, greed & thievery.
    24 May 2014, 03:19 PM Reply Like
  • Minutemen
    , contributor
    Comments (2287) | Send Message
     
    I don't know why Barron's has such an infatuation with Pomboy. She made one right call preceding the 2008-2009 debacle, but has been wrong ever since (and missed one of the greatest bull runs in market history). Seriously - U.S. treasuries and gold are her investment choices? I've been long and staying long primarily U.S. stocks.
    24 May 2014, 11:14 AM Reply Like
  • delprice
    , contributor
    Comments (1976) | Send Message
     
    Many similar attack pieces by the antiquated wall street mouth piece, in retrospect, turned out to be delusional and financially manipulative: end of 'story.'
    24 May 2014, 01:33 PM Reply Like
  • Workinhard
    , contributor
    Comments (366) | Send Message
     
    Time to stop letting housing run the economy , let rates go where they will go at the end of QE. Housing will eventually find it way , people have to live somewhere.
    24 May 2014, 11:45 PM Reply Like
  • roybuckley
    , contributor
    Comments (30) | Send Message
     
    In her interview she says the USA needs to sell 40 B$ each month. Foreigners buy 10 B$ leaving 30 B$ for the Fed to buy. This month they will buy 25 B$ leaving slack for the 'market' to buy. If her numbers are right, how will this not lead to at least a short term rise in rates???
    27 May 2014, 01:01 PM Reply Like
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